While it looked like the problem with Greece was solved temporarily by the latest bailout plan, Greece has once again dragged down the stock markets, which posted more than 3% in losses yesterday. The Greece bailout plan considered forgiving debt for over 90% of Greek private creditors.
But the latest figures are around 50%, so Greece is trying to force the losses on creditors through what are called collective action clauses, which could lead to an unorganized default and claims on credit default swamps (CDS).
The Institute of International Finance affirmed that there could be losses of nearly a trillion euros. Credit default swamps, or CDS, are causing fear whether they are redeemed or not, because if they cannot cover bonds, then investors will flee from that asset class as well. All of this sows doubt about whether Greece's official creditors -- the IMF, the EU and the ECB -- would have to submit to restructuring as well. At the same time, Spain's risk premium rose for the second consecutive day, which has not happened since August. Rajoy's failure to enact sufficient measures has allowed investors to build their negative view of Spain.
He should not have tried to relax Spain's plan to cut its national debt without first offering a much stricter plan of reforms and cutbacks. Such a plan would have made it easier for him to negotiate terms with the EU. Now markets are not going to be able to tell the difference between PSOE and PP governments in Spain, and that means the country is at a serious risk given the state of uncertainty that is still prevails among global investors.
